On 13 June 2014, the Full Federal Court of Australia in Commissioner of Taxation v The Hunger Project Australia [2014] FCAFC 69 upheld Perram J’s decision in the Federal Court. The Full Federal Court found that it was open to Perram J to conclude that Hunger Project Australia was a public benevolent institution (PBI), and dismissed the Commissioner’s appeal.

For the facts of the case, and our analysis of Perram J’s decision, click here for our article in the September 2013 edition of the Charities Alert.

Commissioner’s arguments

In the appeal, the Commissioner argued:

  • The ordinary meaning of ‘public benevolent institution’ is an institution that gives or provides relief directly to those in need.
  • The context supports a construction of the expression which requires the direct provision of relief.
  • A number of authorities support the Commissioner’s contention in relation to the requirement of the direct provision of aid.
  • Perram J erred in relying on Federal Court Commissioner of Taxation v Word Investments (2008) 236 CLR 204.

The decision

In relation to each of these arguments, the Full Federal Court held:

  • The Commissioner’s restrictive interpretation of the ordinary meaning of ‘public benevolent institution’ could not be supported by the authorities relied upon by the Commissioner.
  • The Commissioner’s submissions based on the statutory context were unpersuasive and misconceived.
  • The authorities did not support the Commissioner’s contention in relation to the requirement of direct provision of aid.
  • Perram J did not err in relying on the Word Investments case.

The Full Federal Court held that the ordinary meaning of a PBI includes an institution which is organised, or conducted for, or promotes the relief of poverty or distress. An entity can still be a PBI if it raises funds for provision to associated entities for benevolent relief, even if the entity does not itself directly provide the relief.

Consequences of the decision

The decision has potentially wide ranging consequences, possibly expanding significantly the meaning of PBI (at least from what the Commissioner considered to be the meaning).

It seems to us that in the context of PBIs established as groups of companies limited by guarantee, the result is clearly appropriate.

Under the Commissioner’s view, if one company provides health care services and also owns property to use in its activities and raises funds, it would be a PBI.

However, if that company restructured so that there were a holding company, separate operating companies for each facility, a separate land owning company and a separate fundraising company, the Commissioner’s view would be that none of the holding, land owning or fundraising companies could be PBIs. The effect would be, for example, that the FBT exemption for staff employed by these companies would not apply, and the group could not seek donations to extend an existing health care facility as it would be owned by the land owning company.

We consider that such a view would be incorrect in law, and the Hunger Project decision shows that view is not correct.

We also consider that if the Commissioner eventually loses on any appeal to the High Court, the government should not amend the law to provide that a PBI must provide aid directly to those in need. At the very least, it should cater for entities that work together, even if some of the entities do not provide aid directly, and even if they are not part of a formal corporate group.

Also, the Full Federal Court held that it is important that to be a PBI, the institution must provide the relief through related or associated entities, even if it did not itself directly provide the relief.

For example, if an entity is set up simply to provide financial support to associated entities providing direct support, then it would seem to be a PBI based on the Full Federal Court decision.

The ATO’s and the ACNC’s responses to the decision

In the ATO’s Non-profit News Service No. 412, the ATO stated that they are currently considering the implications of the Full Federal Court decision and will issue further advice on this matter.

We understand that the ATO is not intending to file any special leave application to appeal the Full Federal Court decision to the High Court.

The Australian Charities and Not-for-profits Commission (ACNC) stated in their Interpretation Statement (CIS 2013/01) that they will update their Interpretation Statement.

Click here for the ACNC’s Interpretation Statement.